Micheál Martin (Cork South Central, Fianna Fail)
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73. To ask the Minister for Finance if his attention has been drawn to a guidance issued by the Revenue Commissioners in May 2007 that advised that food supplements were allowed to be supplied at a zero VAT rate as they were defined under the Value-Added Tax Act 1972. [38222/19]

Paschal Donohoe (Dublin Central, Fine Gael)
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I can confirm that my attention has been drawn to the document referred to by the Deputy as set out in my replies to previous PQs on the matter (35731/19 and 36296/19).

I am advised by Revenue that the document was an internal document prepared in 2007 and that it was never published on the Revenue website. The document has no legal value or authority over VAT legislation in place on 1 January 1991 or subsequently and has no legal effect. It does not mean that food supplement products were legally zero rated on 1 January 1991 or subsequently.

Irish VAT law does not provide a zero rate for food supplement products and under EU VAT law Ireland is precluded from introducing such a provision. A zero VAT rate for food and drink is provided for under a derogation from EU VAT law which allows Member States to retain certain zero rates for goods and services which were expressly covered in their national VAT legislation on 1 January 1991. The legislative provision for food and drink was in place on 1 January 1991; however, there was no legislative provision for food supplement products and therefore they cannot be legally zero rated.

Shortly after the introduction of VAT, Revenue allowed the zero rate to be applied to certain food supplement products (vitamins, minerals and fish oils). This concessionary approach expanded as the market developed over the years and resulted in the zero rating by Revenue of further similar products, including products other than vitamins, minerals and fish oils and references included on the VAT rates database and other information on the Revenue website simply reflected this practice. The evolution of the scope of the concessionary treatment of certain types of food supplement products was well understood by the industry and by agents representing clients in the food supplements sector and has never been disputed by Revenue.

Revenue has acknowledged that the scope of its zero rating concession had broadened progressively over time to the point that it had become increasingly difficult to maintain an effective distinction between food supplement products that could benefit from the zero rate and those that were standard rated. Revenue acknowledges that this concessionary approach was unsatisfactory and led to diverging and inconsistent practices. There were continuous efforts by elements in the industry to expand the zero rate to products that should be standard rated, including products claiming to enhance male fertility, promote hair growth, boost tanning, avoid a hangover and reduce stress.

Following complaints from the Irish Health Trade Association (IHTA), Revenue conducted a comprehensive review of the VAT treatment of food supplement products, including getting an expert report on the definition of food for the purposes of the VAT Consolidation Act. The expert prepared a detailed, scientific report that concluded that food supplement products are not conventional food. Based on the expert report and its own legal analysis, Revenue concluded that the status quo was no longer sustainable.

Following this review, Revenue engaged with my Department concerning policy options that might be considered in the context of Finance Bill 2018. The relevant legislation was not changed in Finance Act 2018 and therefore Revenue issued new guidance in December 2018 which removed the concessionary zero rating of various food supplement products with effect from 1 March 2019. Following representation from Deputies and from the industry, I wrote to Revenue outlining my plans to examine the policy and legislative options for the taxation of food supplement products in the context of Finance Bill 2019. Revenue responded by delaying the withdrawal of its concessionary zero rating of the food supplement products concerned until 1 November 2019. This will allow time for the consideration of any legislative changes in the context of Budget 2020.

Over the last few months, my Department carried out a public consultation on the taxation of food supplement products. The consultation sought input from a wide range of interested parties, including from health and nutrition experts and the Minister for Health. The results of the consultation were included in the recently published 2019 VAT Tax Strategy Group (TSG) paper as part of the Budget 2020 process, available here:

The options outlined in the TSG paper will be considered in the normal way as part of the budgetary process.